The U.S. Consumer Product Safety Commission (CPSC) announced on Tuesday, June 7, 2016 a settlement with Sunbeam Products, Inc., d/b/a Jarden Consumer Solutions (Jarden) relating to an August 2012 recall of its Mr. Coffee Single Cup Coffeemakers.[i] The $4.5 million settlement is the latest in a string of multi-million-dollar penalties that the federal agency has issued for failures to timely report potential product safety hazards. The trend in rising civil penalties—part of an intentional push by CPSC to discourage late reporting—highlights the need to report immediately to CPSC when companies receive information about a potential safety issue.

Jarden’s settlement stems from an August 2012 recall of 520,000 single-cup coffeemakers sold broadly at major retailers. According to the CPSC press release, Jarden received “numerous complaints” between 2011 and 2012 that the product expelled hot water and coffee grounds on users, including 32 reports of burn injuries. Jarden allegedly conducted its own investigation into the cause of the defect and waited until it received the conclusions from its investigation before reporting to CPSC, which violated the Consumer Product Safety Act (CPSA).

The CPSA requires manufacturers, importers, distributors, and retailers of consumer products to report to CPSC “immediately” or within 24 hours of “obtain[ing] information which reasonably supports the conclusion that such product” either fails to comply with a safety rule or standard or creates a “substantial product hazard” or “unreasonable risk of serious injury or death.”[ii] CPSC does grant some leeway to a firm to conduct a brief internal investigation, but that investigation cannot exceed 10 days.[iii]

The Jarden penalty comes on the heels of CPSC’s announcement of a $3.75 million settlement last week with Starbucks-owned Teavana.[iv] CPSC alleged that Teavana had received “numerous complaints” about its tea tumblers “exploding, shattering or breaking” during normal use, resulting in at least six injury reports and an eventual recall in May 2013. As with the Mr. Coffee recall, CPSC alleged that Teavana failed to “immediately” report the matter. In addition to the civil penalties, both Teavana and Jarden also agreed to implement compliance programs designed to ensure compliance with the CPSA and to maintain a system of internal controls and procedures, as is common in these settlements.

Penalty amounts have risen sharply in the last two years due to CPSC’s concerted effort to better reflect Congressional intent in raising the penalty ceiling under the Consumer Product Safety Improvement Act (CPSIA) in 2008. In speaking to the International Consumer Health and Safety Organization in February 2015, Chairman Elliot Kaye affirmed this goal, stating his concern that “civil penalties are seen as nothing more than the cost of doing business” and directing CPSC staff that, “When it’s deserved, we want to see higher penalties.”[v] True to his word, while the majority of civil penalties prior to 2015 were in the hundreds of thousands of dollars, most penalties in 2015 and 2016 penalties have been in the millions of dollars, with the majority over $2 million.[vi]

Twice in the last two years, CPSC has imposed the statutory maximum on companies that failed to report timely and made material misrepresentations to CPSC during the course of the investigation. The first of these, against LG for defective dehumidifiers, amounted to a penalty of only $1.8 million, as the conduct occurred prior to the imposition of the CPSIA’s higher cap. Then, in March of this year, Gree Electric agreed to a record $15.45 million penalty for failing to report its defective dehumidifiers, making it the first company to reach the CPSIA’s maximum penalty amount.

CPSC has been criticized both externally and internally, in public statements by Commissioner Joseph Mohorovic, for failing to be transparent in the assessment of these penalties. But what is clear from Mohorovic’s statements and CPSC’s own reports is that the greatest portion of these large penalties results from the company’s delay in reporting to CPSC.

Now, more than ever, it is critical that a company immediately take action to determine whether reporting is required when it receives information that suggests that there might be a potential safety concern with its product. At times, this may require reporting before the investigation is completed. However, not all product incidents require a report to the CPSC, and reporting to CPSC does not always lead to a recall. But when making the decision as to the proper action, it is important to take into account that failing to report to CPSC within the prescribed time will almost certainly result in a penalty. With penalties getting steeper every year, the importance of timely reporting increases.

For further information or guidance on issues relating to CPSC, including recalls, please contact Judy Okenfuss or Meghann Supino. Judy Okenfuss is a Managing Partner of Ice Miller who focuses her practice in representing manufacturers, distributors, retailers, and importers in all types of matters, including recalls. Meghann Supino is a Senior Associate at Ice Miller who focuses her practice on regulatory compliance matters, including advising clients on legal issues involving consumer product law and recalls.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.